March Madness in the Markets

March Madness in the Markets

Posted on March 28, 2022
In the full spirt of the season, March “Market” Madness continued into last week.  After declining nearly -13% to start the year, the S&P 500 has since experienced a kickback rally, retracing a little over half of the overall decline in just under two weeks.  This should not come as a surprise.  As we wrote about last week, linked here, volatility goes in both directions.  Some of the largest short-term market rallies occur in the most volatile of markets (currently the S&P 500 is in a Bearish Canterbury Market State).

Here is some positive news for the market.  In the last 2 weeks, the Nasdaq 100 has picked up in relative strength.  The Nasdaq 100 is an index representing primarily technology-based stocks.  Studies show that S&P 500 index tends to be more favorable when the Nasdaq 100 is leading.  This makes sense—the S&P 500 is more than 40% allocated towards some of those same technology-related stocks in the Nasdaq 100.  When the heaviest sector leads, it makes sense that the S&P 500 would perform better. 

There is a caveat.  Markets are volatile, and technology-related stocks have performed relatively weaker in 2022 for all but the last two weeks.  In volatile markets, particularly in the bearish Market State that our indicators show, kickback rallies are often led by the weakest sectors.  It is good for the markets to see tech-related stocks pick up in relative strength, but there is no indication that the outperformance will last for an extended period of time as of right now.

Even with the recent rally, Canterbury’s relative strength rankings show that the value-oriented sectors and styles still lead growth on a risk-adjusted basis, according to Canterbury’s Volatility-Weighted-Relative-Strength (VWRS) rankings. 
In the tables below, notice that the number one sector is still Energy, followed by Utilities, Basic Materials, Health Care and Consumer Staples.  Growth oriented sectors like Information Technology, Communications, and Discretionary are at the bottom of the sector ranks.  Large, mid, and small cap value lead the growth style indexes.
 
Sector VWRS Rank   Style Index VWRS Rank
Energy 1   Large Cap Value 1
Utilities 2   Mid Cap Value 2
Basic Materials 3   Small Cap Value 3
Health Care 4   Large Cap Growth 4
Staples 5   Mid Cap Growth 5
Industrials 6   Small Cap Growth 6
Real Estate 7      
Info Tech 8      
Discretionary 9      
Financials 10      
Communications 11      
Source: Canterbury Investment Management Volatility-Weighted-Relative-Strength indicator

Bottom Line
There is a lot going on in the equity markets both domestic and abroad.  For the most part, large cap securities are leading mid caps and small caps, and value is leading growth.  Growth stocks have picked up in relative strength, but there is no telling how long that momentum will stay in place.  Abroad, both the EAFE index (Europe, Asia, and Far East) and Emerging Market index (heavy China exposure) are experiencing similar volatility to the US markets.  Treasury Bonds are at their lowest point since May 2019.  The bottom line is that markets remain volatile.

This is where having an Adaptive Portfolio can benefit.  Contrary to the traditional buy & hold approach, which often balances portfolio exposure between US stocks and bonds, with some international securities, an Adaptive Portfolio can rotate to other areas.  In this type of high volatility market environment, an Adaptive Portfolio, like the Canterbury Portfolio Thermostat, may have low correlation to the general markets and have higher exposure to energy, commodities, or even inverse funds to stabilize volatility.  The goal is to keep your portfolio comfortable as the market’s volatility heats up.
Canterbury Investment Management: Tom Hardin

More About Tom Hardin

As Chief Investment Officer, Tom has more than 30 years of experience in the investment management industry and has a broad breadth of knowledge. He is known as an innovator, educator and has been revolutionary in the advancements of portfolio and risk management.

 
Canterbury Investment Management: Tom Hardin

More About Brandon Bischof

Brandon is directly responsible for managing the Canterbury Analytics Group (CAG). To date, Canterbury Analytics Group has played an important role in advancing portfolio management from a loose art form based on subjectivity and obsolete assumptions to an adaptive process with scientific rules and methods capable of providing evidence based results and statistically relevant value add results.


Every effort was used to provide accurate data and mathematical calculations to provide, what we believe to be, accurate results. Canterbury Investment Management, LLC, and its principal owners, make no guarantee of completeness or accuracy of data or calculations as well as conclusions of any statistical data or information contained in the simulation illustrated on this page. Past results or performance is in no way a guarantee of future results.